Category Archives: Advertising

Facebook is a powerful advertising platform

By | Advertising, Facebook | 6 Comments


You can see from the charts above (originally on Techrunch) that Facebook is getting stronger and stronger as an advertising platform. So long as advertisers are spending rationally, which is a good first order assumption, then if ARPUs are rising then ads are becoming more effective.

Perhaps unsurprisingly, none of this is happening by accident. Facebook has been improving ad measurement, improving app speed, and pushing video to increase time-on-site. And that’s just what I read about today.

We see this amongst our partner companies too, many of which are now finding Facebook a much better platform than Google. That’s particularly true for those selling a novel product or service – people don’t know they want it so they aren’t searching for it, but well targeted ads Facebook can excite demand.

Social network usage is starting to drop

By | Advertising, Facebook, Startup general interest | 5 Comments

2014 has been a great year for social media marketing. A number of our companies have enjoyed great success advertising on Facebook and they’re not alone. Facebook is forecasting Q4 revenues of $3.6-3.8bn, up 40-47% on the year ago quarter. Yet, paradoxically in some markets social network usage is starting to drop:

weekly social network access

As you can see from this chart it is in the US, China, and particularly the UK that consumers are turning away from social networks, and it’s a fair bet that the trend in these countries will be seen more widely next year.

The best guess is that users are shunning Facebook et al for messaging apps, which goes a long way to explaining Facebook’s $19 billion purchase of WhatsApp earlier this year.

This means that we can expect Facebook advertising to become more competitive next year. Buoyed by the success stories from 2014 bigger brands and bigger budgets will come to the platform whilst inventory remains the same or declines, at least in the UK or US. That means higher prices. We’ve seen the same trend play out on Google over the last few years where paid search in many categories is now too expensive for startups.

As this plays out entrepreneurs will be forced to look at newer platforms and one of the interesting things will be whether messaging apps emerge as an interesting advertising category.

The rise of native advertising

By | Advertising | 8 Comments


There’s an interesting post up on Stratechery asking whether we are approaching Peak Google which features the graphic above. The central argument is that in the way IBM fought to protect their PC platform and missed the Windows opportunity and Microsoft fought to protect its Windows franchise and missed the web opportunity Google will fight to protect their search platform and miss the native advertising opportunity. Search is a c$50bn out of a total advertising market of c$450bn, and hence a winner in native advertising winner could be bigger than Google.

I’m a big believer in the increasing importance of native advertising. The best companies these days have interesting products and brands that lend themselves to this new medium. That said, I’m not sure that means another company will eclipse Google. Search always looked like it might have one major winner, but I don’t see the same network effects at play in native advertising which will find its audiences on the multiple content sites where they hang out.

A brief and not-so-kind history of web advertising

By | Advertising | One Comment

You could chart the history of web advertising like this (quotes from Adrian Saunders/

  1. Display ads from Yahoo and AOL: “Incredible returns! Trackable analytics on reader behavior! Just like the print ads you know and love, only cheaper and with better metrics!”
  2. Google Adwords, Demand Media: “Publish what you want, when you want, and make a living through Google Adwords! Build a business outside of the stranglehold of portals! Show readers ads that they’ll actually want to click! Keep optimizing the hell out of your stuff and you’ll turn this into a business any day now!
  3. Facebook and Twitter: “Forget everything but social, where people read and consume content based on other people’s recommendations! Build up social capital, focus on “sharing” and watch your amazing work go viral! You’ll receive more traffic than you’ll ever need to make the business work!”
  4. Mobile: “Everything before was a falsehood, the reality is that everyone is on their phones now. Mobile is where advertising is really going to take off…”

And now the new hotness is content marketing and it’s close cousin native advertising, ref A16Z’s investment in Buzzfeed).

The analysis above is a bit unkind in that entrepreneurs have built businesses on the back of display ads, Google Adwords, social and mobile, and critically it ignores search advertising. However, there’s more than a grain of truth in it. Nobody is enamoured with display ads anymore, everyone understands that unless you have massive traffic you only make pennies from Google Adwords, and mobile has already taken a big chunk out of desktop social (albeit that much of it is mobile social).

Ultimately the important question is: is web advertising moving forward?

For me the answer to that is a clear ‘yes’. Search marketing is the most efficient way of connecting people with things they want the world has ever seen, social is developing into a great way to connect people with things they might want to buy but don’t know exist, and now content marketing allows brands to build authentic and high value relationships with potential customers. Moreover, from a startup perspective you can make these channels work at the small scale you need in the early days of your business.

That said, there is a constant feel of “emperor’s new clothes” about the web advertising world and it’s important to look beyond the hype.

A big industry is born and peaks within 13 years

By | Advertising, Facebook, Startup general interest | One Comment

It’s been widely reported this morning that music downloads are now in decline. If you take the launch of the first iPod as the date when music downloads started to become a meaningful market then the time from inception to decline is a meagre 13 years.

As an indicator of the significance of the download market, remember that it was the iPod that saved Apple after Jobs returned to the company – according to Wikipedia iPod revenues peaked at $4bn in Q4 2007 and were 42% of Apple’s sales in that period (I imagine that there was an Xmas boost and that iPod sales were a lower percentage over the whole year, but I don’t have the data).

Apple, of course, came up with the iPhone and has prospered in spite of the declining significance of music downloads, but this story shows how quickly new markets spin up and down these days and how fleet of foot companies have to be to survive and prosper. This is why Google is launching driverless cars and Facebook is bought Occulus Rift – the pressure to come up with significant new innovations gets greater and greater as the pace of change increases.

Yesterday I noted that the desktop advertising has also peaked. There’s a similar story there. If you take the 1995 Netscape IPO as the start of the internet advertising market then that industry went from inception to decline in 19 years.

New markets spinning up creates opportunities for startups and when they spin down it’s because a new industry is spinning up, with more opportunity for startups. The faster this happens the better it is for those of us in the startup world.


Desktop advertising in decline

By | Advertising, Mobile | 2 Comments

Latest research out from eMarketer predicts that the US desktop advertising market will shrink by 1% this year.

Desktop advertising in decline

The other side of the coin is of course continued rapid growth in mobile, which is forecast to surpass desktop advertising by 2016.

The future is smartphones. Full stop. eMarketer predict that the average US consumer will spend 2 hours 51 minutes per day with on their phones this year, excluding voice.

Facebook remains the dominant social network

By | Advertising, Facebook, Twitter | No Comments

screen-shot-2013-12-30-at-15-54-02It may be that teenagers are deserting Facebook and that their future prospects aren’t as rosy as they were maybe a year ago, but the chart above makes it clear that Facebook is in a much stronger competitor than any of it’s competitors. LinkedIn, Pinterest, Twitter and Instagram are all great businesses that either have their use as marketing channels or soon will do, but Facebook remains the grand-daddy of them all. With the exception of LinkedIn these are all advertising based businesses so think of it this way – if you are targeting all US online adults you will find 70% of your target market on Facebook, and only around 20% on each of the other sites.

Advertising has become content

By | Advertising | 4 Comments

Screen Shot 2013-09-02 at 09.26.25

I love this picture which was a finalist in the ‘Spirit’ category at the Red Bull Illume Image Quest photo competition. The contrast between the obvious power of the wave and the relaxed surfer paddling on top is mind wrenching. The surfer is Sean Woolnough, the wave was in Namoto Island, Fiji, and the photo was taken by Stuart Gibson.

I also love that Red Bull and other great brands are funding this type of content by sponsoring competitions. One of the great things about the internet is that it facilitates the distribution of amazing free content (like this photo), but that creates a knock on problem of figuring out how artists get paid. One of the other great things about the internet is that ready access to reviews and social media has made it impossible for companies to compensate for bad products with big marketing budgets. Today’s winners have great products and further build trust with consumers by further enriching their lives by sponsoring and creating cool events and experiences. It’s somehow satisfying that with competitions like this these two trends are coming together and top brands are now offering at least a partial solution to the main problem of free content by paying artists to create.


Twitter ad revenue near $1bn in 2014

By | Advertising, Twitter | 4 Comments

I’m rather late to this, but this morning I was pointed towards an eMarketer projection of Twitter revenues from March this year which has them hitting $950m in 2014, up from $583m this year.

Screen Shot 2013-08-29 at 13.39.10

That’s some growth given the scale they are at and explains why people are talking more and more often about Twitter’s IPO. eMarketer puts the growth down to Google and Facebook focusing on mobile, Twitter’s ads API, and the fact that its ads are truly native (i.e. a genuine part of the native user experience).

Two other interesting facts:

  • Twitter has 550m active users, so their ARPU is about $1. The takeaway: it takes a lot of users to build a substantial ad based business. I can’t find any information on profits so it’s hard to know what this means for their valuation. Clearly they will need very high net margins to reach the mooted $10bn IPO value.
  • Only 17% of their revenues come from outside of the US. The takeaway: there’s an opportunity to help European advertisers spend more money on Twitter.

The physical dollars that turned to digital pennies are now becoming mobile pennies10^(-1)

By | Advertising, Innovation | No Comments

With all the press and analyst speculation last year that the transition to mobile might undermine Facebook’s revenues this isn’t new news but reading an FT article this morning titled Digital cinders spark mobile forest fire the penny finally dropped for me that after the transition to digital shrank many industries, the transition to mobile will now shrink them further.

For those unfamiliar with the ‘digital shrinks businesses’ argument my favourite example is encyclopedias which went from a circa £700m book industry dominated by Britannica, to a c£70m CD Rom industry dominated by Encarta, to a £0 industry dominated by Wikipedia. This is the most extreme example I know, but there are many other good ones, particularly from the music and newspaper industries.

The fact that mobile is shrinking industries doesn’t mean that mobile businesses aren’t viable of course, they just have to find another way to make revenues or get by with lower advertising revenues per user. For startups looking to build long term sustainable businesses I think that leaves three broad options – selling stuff, a subscription model, or shooting for massive scale and relying 100% on advertising.

One of the lessons most investors learned from the web2.0 era was that whilst success pays out big really huge scale is required to make social media pay and the odds of any given startup getting there are slim. That’s why investment dollars chase the few that are breaking out so aggressively. That same lesson applies twice over for ad based mobile models.

Mobile adtech businesses like our portfolio StrikeAd are still in good shape though – largely because mobile media consumption and mobile ad spend continue to grow quickly. If CPMs are low these businesses can make the same revenues by simply selling more ads, and the inventory is there.

That said, if somebody could find a mobile ad format that monetises better then the whole ecosystem would be better off. There are a number of companies working on this now, including Loopme in the UK. I hope they succeed.


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